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Owners of large commercial properties, especially those frequented by the public, should ensure that they have realistic levels of public liability insurance covering their premises.
This should be upwards of R10 million, says Standard Bank.
Denise Shaw, managing executive, Standard Insurance Limited, says: “Many major property owners underestimate the costs that could arise should members of the public be injured in an incident on their premises.
This critical insurance may be incorrectly restricted to levels that are more suited to much smaller business premises.
“Owners can avoid worry by making sure that the level of public liability insurance fits the risk profile of, for example, a major shopping centre. This can protect against the danger of potential expensive litigation by injured parties.”
Generally, public liability insurance will cover all public areas such as parking lots, atriums, walkways and passages, while tenants are responsible for events that may occur inside their shops or offices.
Factors to consider
When considering short-term insurance for commercial property, owners should consider several basic factors. Primarily, says Shaw, these are:
- Ensuring that the insured value of the premises is current and realistic. The insured value must be based on replacement value (i.e. current rebuilding costs) and not purchase or market value. Traditionally, this exercise is conducted every three years by insurance companies or brokers. Doing it more frequently could involve costs, but could also be worthwhile.
- Making sure that the insured replacement cost of a building is realistic. In the event of a major incident, it could be devastating to find out that a building could not be constructed to the original standard, because the cost of finishes had escalated vastly in price over the years.
“Changes in areas surrounding major centres also occur over time. This could mean that additional costs could arise due to the physical relocation of supply and service points such as electricity and waste systems. Additionally, municipal regulations could also have changed requiring expensive changes to a structure,” says Shaw.
- Managing the insurance risk appropriately by monitoring the tenant mix in commercial properties. In industrial premises, as well as in other commercial buildings, risks are heightened if tenants are using premises for storage of flammable substances, volatile chemical, welding, or similar purposes. It is obviously riskier, for example, to locate a restaurant with busy kitchen next to a paint retailer, where a kitchen fire could spread to highly flammable paint containers.
- Making adequate provision for loss of revenue due to business interruption is essential. “Significant monetary losses could occur if a building is seriously damaged and has to be repaired or rebuilt. This process could take several months, or even longer. Costs of maintaining services, combined with revenue losses can be devastating,” says Shaw.
“Generally, this coverage should be for a longer rather than short period of time. Inevitably, restoration projects run longer than scheduled. It is better to be covered for, say, nine months, rather than face losses when a three month compensation period expires.”
- Avoiding possible conflict with tenants by clearly demarcating where the responsibilities of the owner end and those of the tenant begin. It pays to ensure that a tenant’s contract deals with insurance issues. For example it should be made clear who is responsible for damage to shop fronts, glass display windows, fittings such as geysers, kitchens, shelving and stock. The onus on the tenant for covering possible accidents and injuries in shops should be clearly stated.
“As in all cases, prevention is better than cure. All building owners should ensure that regulations pertaining to their buildings are adhered to. Making sure that fire fighting and other safety equipment is where it should be, and that it is working effectively, could avoid injuries and even save lives,” says Shaw.
“In the case of an insurance claim it will also simplify the process. Finding that equipment that could have saved or reduced the damage to the building was not in place as required, could lead to rejection of a claim.”